BER,Ppt5.ppt1 Media and Journalism Module Business and Economics For Reporters 5. Economic reality for journalism today.

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Media and Journalism ModuleBusiness and Economics For Reporters5. Economic reality for journalism

today

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This week’s lesson

• The big issues in the world’s economy and key concepts. • There is a lot of media scrutiny surrounding these topics – which is precisely why you need to thoroughly understand what they mean and have some background knowledge of the issues!

• Globalisation - major topic in the media today

• Other important subjects we’re looking at this week are:• Role of multinational companies• Environmental considerations• Consumer protection

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Globalisation

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What is Globalisation?

• Globalisation – the word is everywhere!• newspaper, • news broadcast • surf the internet

• But what does it really mean? • Is there one definition understood by all who use the term? NO

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Globalisation Many Things to Many People

www.bized.ac.uk

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What is Globalisation?

• To some, globalisation is a two part process:• embracing modernisation, which involves increasing living standards through international trade and westernisation • contentious component• not all countries want to embrace a western competitive and materialistic lifestyle

• sparked the vocal anti-globalisation protests.

• As journalists • globalisation - a ‘catch-all’ term for a variety of activities and issues

• might be used when looking at the political, social, environmental, historical, geographical and cultural implications of globalisation.

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Economic Globalisation

• In business, globalisation means economic globalisation• includes globalisation of markets and globalisation of production.

• The most common international business definition of globalisation• shift towards a more integrated and interdependent world economy.

• As journalists we need an understanding the two main ways globalisation occurs:• Globalisation of markets• Globalisation of production

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Globalisation of markets

• The merging of historically distinct national markets into one huge global marketplace.

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Global Market

• Is there a true Global Market?• hotly debated in academic, media and business circles

• substantial differences in tastes and demands existing in countries and regions means base products are customised to meet local conditions

• Many analysts believe that this global demand is rapidly increasing because the barriers to cross-border trade are falling

• Companies that offer a relatively standard product worldwide help create a global market.• Citicorp credit cards • Coca-Cola soft drinks • Sony PlayStation and • McDonald’s hamburgers. Note these are all consumer products BUT…… are McDonalds products exactly the same in all countries?.

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True Global Markets

• Products and services on offer are identical in every country• less often found in consumer products, • more often found for industrial goods and materials. • Commodities such as aluminium, oil and wheat, and specialised

industrial products such as microprocessors can be sold easily and without modification anywhere in the world.

• Consumer products are prone to modifications• consumer tastes and preferences, • distribution channels • cultural conditions, and• business and legal regulations.

• Other manufacturers change products to suit consumer demands• carmakers promote different car models depending on demand in

the local market• fuel economy• local traffic conditions • compact models for ease of parking• large vehicles as a status symbol (no matter what the cost

implications are).Are McDonalds products exactly the same in all countries?

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A Global Product?

Are McDonalds products exactly the same in all countries?

In Hawaii the burgers have pineapple on them.

Fiji McDonalds offer veggie burgers!

This is a shrimp burger!

Bacon and egg McMuffin’s are very popular in some countries.

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Globalising markets

• Markets have become more globalised as technological innovations occur• low-cost and reliable transportation• economically feasible to ship goods throughout the world.

• Many companies are rivals throughout the world E.g. Ford and Toyota.

• Companies wanting to expand globally • use strategies that worked in their home country or in other countries

• common factors such as product offers, operating and marketing strategies and brand names

• leads to greater homogenisation of markets.

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Globalisation of Production

• The globalisation of production is the sourcing of goods and services from locations around the world• advantage of differences in the cost and quality of factors of production• labour, • energy, • land and capital.

• Companies undertake globalised production to lower costs or to improve their product • difficulty in sourcing components or raw materials locally

• quality of components or raw materials in other countries is superior and can provide a better finished product

• skills and cost structures present in other countries make them more attractive sources of production than a home country for production

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The Boeing Story

• The United States aircraft manufacturer Boeing rationale is that the best quality products are sourced, irrespective of where they come from.

• This gives them a competitive edge in their industry

• Source components from throughout the world:• eight different Japanese firms provide fuselage, doors and wings

• the wing flaps are from Italy• the nose landing gear comes from Singapore

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True Global Production

• Debate about the extent to which production is and can be truly global.

• No one disagrees that more and more global production is taking place – however, there are still substantial barriers that make it impractical to fully achieve global production.

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Matsushita Battery Industrial - Global Production Locations

www.panasonic.com/.../oem/about/index.html

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Why is globalisation growing?

• There has always been globalisation – early explorers were often motivated by trade concerns and were looking for new markets for products.

The 138–126 BC travels of Zhang Qian to the West, Mogao Caves, 618–712 AD mural.

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Recent Growth in Globalisation

• The last 20 years of the 20th century globalisation has grown rapidly

• What are driving forces behind the upswing in globalisation?

• In economic terms, there are five major forces that drive globalisation:

1. Political forces2. Technological forces3. Market forces4. Cost forces5. Competitive forces.

http://www.global-sanyo.com/corporate/story/11_2.html

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1. Political forces

• Significant political changes fuelled the rapid rise of globalisation: • Formation of the United Nations – in 1945 • Membership requires a country to accept the obligations of the

UN Charter, • the promotion of higher living standards, • full employment• economic and social progress, • all of which are central to an active world economy.

• Declining trade and investment barriers:• 1920s and 1930s countries enacted legislation designed to

prevent international trade or foreign direct investment • Countries imposed high tariffs on importing manufactured goods

to protect the domestic industry from outside competition • After the Great Depression of the 1930s the world has moved

toward free trade. • The General Agreement on Tariffs and Trade (GATT) and its

successor the World Trade Organisation (WTO) have enabled a massive fall in tariffs and subsequent immense expansion in world trade.

• The UN banking organisations (International Monetary Fund (IMF) and the World Bank) have allowed expansion of world trade.

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1. Political forces - Trade Agreements

• Many countries have removed restrictions on foreign direct investment and put in place bilateral or multilateral agreements to protect and promote investment between the countries. • Melanesian Spearhead Group Trade Agreement

• Vanuatu/Fiji Bilateral Trade Agreement

• PACIFIC ISLANDS COUNTRIES TRADE AGREEMENT (PICTA)•http://www.spc.int/AC/Healthy_Lifestyle/tobacco_trade_agreement_in_the_region.html

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1. Political forces

• Formation of trade blocs to foster trade between member nations. • European Union (formerly the European Economic Community)

• North American Free Trade Area.

• Decrease in the number of communist nations• the decline in communism has enabled many industries to be privatised.

• opened those former communist economies to global competition and enabled new markets to emerge

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2. Technological forces

• The immense technological advances made (final decades of the 20th century) and a substantial driver of globalisation

• Some major technological breakthroughs were:• Computers became cheaper

• development of the microprocessor • steady decrease in the cost of microprocessors - Moore’s Law predicts that this trend will continue and that the power of the microprocessor will double yet the cost of production will halve every 18 months.

• cost of communications plummets• costs of co-ordinating and controlling global business fall

• Communications improved• satellite and internet technology growth changed the way the world sends and receives information

• When information flows freely, regardless of traditional country borders, suppliers and customers can give and receive information quickly and cheaply

• Cable TV in Europe and Asia allow advertisers to reach many countries simultaneously

• Growing use of email - instant and reliable communicationwww.nano.org.uk

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2. Technological forces

• The internet grew• internet technologies have transformed communication and allowed information to flow freely

• smaller companies can maintain a web presence and interact with customers

• Videoconferences over the internet reduces time and cost spent on travelling

• Main benefit from the internet is in obtaining information and making transactions• make sales • process invoices• arrange stock transfers• saving considerable amounts over more conventional means

Ford is using the internet to exchange information between buyers and sellers in the entire automobile supply chain. The exchange costs Ford only $15,

but a conventional purchase order is around $150.

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2. Technological forces

• Transport benefits• Economically the most important transport developments are the development of commercial jet aircrafts and the greater use of containers (super-freighters)

• Previously transport costs made international business prohibitive. • For example, it could take hundreds of workers days to unload a ship when it arrived at port

• Containers revolutionised international business and transport costs decreased considerably

• Containers could be quickly and efficiently moved between sources of transport

• The cost savings in loading and unloading were immense, and have been a key factor in the improvement of cost structures of global businesses

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3. Market Forces

• Increased market opportunities• Global expansion by one company can lead to greater expansion and increased international business by another.•A carmaker entering a new market will encourage a tyre company to also open business.

•Common for a global supplier to make global supply contracts with a global customer – for example, the tyre supplier may supply the carmaker with tyres for every country in which the carmaker is operating.www.roadway.co.uk/productnews

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3. Market Forces

• Increased travel between countries expansion of the consumer market

• Widespread culture sharing • Better communication networks• Increased use of internet encourage awareness and stimulate demand for products in many countries throughout the world.

www.tonga.pictures-pacific.com

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4. Cost Forces

• Globalising production can greatly decrease costs• economies of scale achieved through an international

business a key reason to expand throughout the world• cost is a big driver of globalisation

• reduce development, production and inventory costs • locate production in countries where the costs of production are lower.

• Some Companies make financial decisions to operate in more than one country• having similar operations in many countries is

inefficient• need to reduce costs due to duplicating resources drives

global operations• open more offices, • extend products to more countries • concentrate on specialist production or component production• reduce duplication and achieving economies of scale

General Electric have gained learning and experience from greater market participation. GE’s philosophy is to be first or

second in the world or to get out of the business.

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5. Competitive Forces

• Competition for available markets is increasing and intensifying

• As countries develop, companies are keen to expand to new markets

• Competitive forces drive globalisation as companies seek to defend their own domestic markets from competitors

• Some companies and industries may need to be in a particular country’s market to create a presence • prevent competitors gaining a footing • seen as necessary to gain momentum in expansion or be recognised as a worldwide presence

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5. Competitive forces at work

• Examples• Within the photographic and imaging industry the American Kodak company and the Japanese Fuji have waged a considerable war in each other’s home country to try to gain market share.

• The earth moving machinery company Caterpillar, when facing global pressure from the Japanese company Komatsu, which earned 80 per cent of its cash flow from its home Japanese market, decided to join with Matsushita to serve the Japanese market. This achieved two aims for Caterpillar – the competition on the domestic market put a check on Komatsu’s cash flow and also interfered with its market share in Japan.

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Globalisation / Anti-globalisation

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Background on the anti-globalisation movement

• There is a large anti-globalisation movement, which argues that globalisation is causing major problems, especially in poorer countries.

• As journalists we need to understand:• What is motivating the protestors against globalisation

• Why it is so contentious?• Why does the word ‘globalisation’ conjure up such a range of negative images?

• It might be seen that more and more rapid globalisation is inevitable BUT many disagree with this theory. • In November 1999 World Trade Organisation summit in Seattle met with the extreme protests and caused major disruption - “Battle in Seattle”

• Anti-globalisation protests have continued and are expected to continue in the future.

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Arguments against globalisation

• Globalisation has benefited some countries at the expense of others • proponents point to rising living standards• opponents point out that Mexico and sub-Saharan Africa have seen the

number of people living in extreme poverty increase between 1981 and 2001.

• Opponents claim there is a huge gap between the world’s rich and poor, • Globalisation has a detrimental effect on labour and labour

standards• Many workers in large nations cite globalisation as corroding labour

standards• Fear that jobs move to developing nations with lower standards and

costs • The ‘race to the bottom’ where countries with higher labour standards

are disadvantaged by others with less rigorous measures. • Supporters say developing nations have competitive advantage in lower

labour costs and should be permitted to capitalise on this asset.• Globalisation has caused a decline in environmental and health

conditions• Centres on the economic advancement of developing nations, which may

not have rigorous environmental or health laws. • Developing nations will do anything to hasten economic progress • May not enact protection measures or introduce occupational health and

safety laws that match those found in the richer nations.•ruphus.com/stash/ips.png

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BREAK

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Role of Multi-nationals

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Role of multi-nationals

• Multi-national companies are a phenomenon of recent times and often associated with globalisation. • A multinational company is an organization that operates in

many countries. For example:• McDonalds BP• CSR Total• ANZ / Quest General Mills• Nestle British American Tobacco• Hilton Hotels Shangri La

• Many people believe that multinational companies only cause problems• The jobs are often low-skilled and poorly paid. • Much of the profit will go out of the country• The company may only stay in a country as long as it makes a

profit • May choose to find another country where it can make a greater

profit. • Multinational companies are primarily interested in making

profits for their shareholders. • Paying wages is an expense that the company will try to reduce.

www.usatoday.com

There was a considerable outcry in Fiji in the 1980s over the exploitation of Fijian natural resources,

especially forests, by the multinational company BP.

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Role of multi-nationals

• Why choose a developing country?• Not subject to the same laws and considerations that

would apply in other countries• Possibility that multinational companies can benefit in

ways that local companies cannot. • Danger that privatisation of public sector can lead to private sector and multinational monopolies.

• The multinational company may use their influence to extract considerable support from the public funds

• indirect measures such as tax breaks• direct grants as well

• Unequal and privileged access to confidential information which can bolster their position in the domestic market.

In Samoa “Overseas investors wanting to build hotels/resorts are encouraged with incentives such as duty free (industry-related) materials,

tax concessions, ability to purchase freehold land (can get Head of State’s consent) or lease customary land.”

http://realestate.escapeartist.com/P-2004106/

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Multinationals

• Increased move to trade liberalisation• Can benefit multinational companies at the expense of local companies

• Dangers exist because multinational sometimes form close links with government

• If the government is economically vulnerable it becomes difficult for that government to adequately regulate the multinational’s operation

• A possible solution - an effective ombudsman to ensure proper scrutiny of multinational operations.

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Environmental Considerations

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Environmental Considerations

• Some of the most contentious issues centre on the environmental impacts of a particular activity or business. 1.Development opportunities

• economic growth sort by developing countries• environmental restraints and laws not considered • could lead to a clash between the more environmentally

friendly industrialised world and the developing countries

2.Environmental concerns will impact on product planning • growth in public concern over environmental pollution

and global warming • manufacturers expected to take responsibility for their

product and be involved in its disposal and recycling.3.The growth of new markets will place pressure on the

world’s environmental beliefs• China and India are demanding resources for further

growth, and looking to poorer and developing nations to provide raw materials and other vital resources.

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Environment and economic development

• Challenges will centre around how to compete on a global market without compromising environmental ideals.

• The key environmental issues for the region:• Improving management of inshore and offshore marine resources

• Minimising land- and sea-based pollution • Promoting sustainable tourism • Providing adequate supplies of non-polluted fresh water

• Conserving terrestrial and marine biological resources

• Developing environmentally and economically sustainable [renewable] energy resources.

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The Pacific Region

• Large dependence on tourism • What makes the Pacific Islands attractive as tourist destinations?

• What could make the Pacific region less desirable?• Increased tourism• Tourist facilities and infrastructure could ruin the paradise that tourists themselves come to see!

www.uow.edu.au/science/eesc/staff/johnm/jm.html l

Trouble in Paradise John Lauerman

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What environmental issues relate to the Pacific Islands?

http://www.starfish.govt.nz/science/facts/fact-pacific-traditions.htm

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Consumer protection

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Consumer Protection

• In the past, businesses could manufacture any product for profit

• Today, health and consumer protection laws

• Some examples of consumer issues:• Product safety • Electrical safety standards• Deceptive advertising laws

• Many examples of negligent companies which continue to manufacture and sell substandard goods and services•As journalists we should be aware

•of the issues that can arise from such areas.

PIQPACIFIC ISLAND QUALITY

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ClosureThe important thing is not to stop

questioning. Albert Einstein

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Summary

• Understanding the economic reality of the world and what this means for growing and developing economies.

• Main focus on Globalisation• major component of the world economy• gathers a huge amount of media attention• where globalisation is coming from• why it is growing so quickly today• ...... and some arguments against it.

• Allied issues:• The role of multi national companies• Environmental considerations, especially those facing the Pacific region in coming years.

• Consumer protection

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Coming Up!

• Next week’s module - The role of business in the world’s economy• The relationships between the main economic players and institutions (eg government, banks, multi-nationals)

• Industry segments – manufacturing, agriculture, retail, etc

• Competitive forces• Taxation

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www.brickbats.co.uk